These 5 Shares Will Fund My Retirement

LONDON -- As a nation, fewer of us are putting money aside for our retirement. Not only are many people turning away from personal pension plans, but last week came news that the number of people actively paying into a workplace pension scheme dropped for a third consecutive year in 2011.

Granted, the fall wasn't enormous. 8.2 million people were active members of pension schemes at work, down from 8.3 million the previous year, according to the Office for National Statistics. But it's the continual downward trend that's worrying, as is the steady loss of so-called "defined benefit" pension savers.

In short, as I've written before, a decent-sized chunk of the population looks to be heading toward a penurious old age.

Wake-up time
That said, I have anecdotal evidence that the message is getting through. Several people I know socially, for instance, have recently been taking an unusually active interest in their pension provision -- and, what's more, have been doing something about it.

On our ever-popular discussion boards, too, I've seen an uptick in the number of people looking at stock market investments as a way to provide for their old age.

Gratifyingly, too, they're less and less blinkered by associating "retirement savings" with the word "pension." Stuffed with decent shares, an ISA, in short, can be every bit as good as a SIPP.

The difference?

  • A low-cost SIPP offers tax relief on contributions, currently at your highest marginal rate -- which is especially attractive if you're a higher-rate taxpayer now, but likely to be a basic-rate taxpayer in retirement. An annuity, or drawdown at a government-capped limit, is the usual outcome.
  • A low-cost stocks and shares ISA offers tax relief on income, and also handily provides ready access to your money should you need it prior to retirement. There's no obligation, either, to buy an annuity, and the rate of drawdown is entirely up to you.

What shares?
But how to pick those decent shares? Personally, my own retirement savings include FTSE All-Share and FTSE 100 (UKX) index trackers, some overseas trackers, and a sprinkling of investment funds.

But most new money is going to buy solid blue chips with decent long-run prospects -- preferably throwing off decent dividends, as well.

Here, for instance, are five solid blue-chip shares that I hold within an ISA intended to provide income for retirement.

Five for the future
Let's start with a quick "pen picture":

First up is GlaxoSmithKline (LSE: GSK.L  ) , which employs around 97,000 people in over 100 countries, manufacturing and selling pharmaceutical products as well as its strong range of consumer-friendly brands: Ribena, Horlicks, Lucozade, Aquafresh, Sensodyne and the Macleans range of toothpaste, mouthwash and toothbrushes. Trading on a forecast price-to-earnings ratio of 11.6, Glaxo offers prospective dividend yield of 5.5%.

Next comes Reckitt Benckiser (LSE: RB.L  ) , whose 19 global "powerbrands" embrace the health, hygiene and household markets, and account for 70% of revenues. Vanish, Lysol, Finish, Durex, Scholl, Clearasil, Dettol and Woolite are household staples, to which must be added popular prescription and over-the-counter drugs and treatments such as Gaviscon. Trading on a forecast P/E of 14, Reckitt Benckiser offers prospective dividend yield of 3.7%.

SSE (LSE: SSE.L  ) is one of just five FTSE 100 companies to have delivered a real dividend increase every year since 1999. A U.K.-based energy supplier, it delivers power to around 3.7 million homes, offices and businesses, and is also the U.K.'s second largest electricity generation business. Trading on a forecast P/E of 11.6, SSE offers prospective dividend yield of 5.5%.

Fourthly, there's Unilever (LSE: ULVR.L  ) , which employs 167,000 people, sells its products in 180 countries, and has a clutch of best-selling brands as diverse as Flora, Dove, PG Tips, Marmite, Persil, Knorr, Ben & Jerry's and Colman's. Trading on a forecast P/E of 16.3, Unilever offers prospective dividend yield of 3.6%.

Lastly, consider 500,000-employee Tesco (LSE: TSCO.L  ) , which is the world's third-largest international retailer, with fully a third of its sales coming from overseas, and spread over 13 countries. Throw in innovative home shopping, finance and telecommunications offerings, and Tesco is more than just another grocer. Trading on a forecast P/E of 9.5, Tesco offers prospective dividend yield of 4.6%.

Let's see the numbers
That's the five businesses. Each, clearly, is large and diversified, with a solid consumer-centric go-to-market proposition.

But how do the numbers stack up? Let's take a look:

Company

Share Price

Market cap

Forecast P/E

Forecast yield

GlaxoSmithKline 1,441 pence 70.8 billion pounds 11.6 5.5%
Reckitt Benckiser 3,585 pence 25.9 billion pounds 14.3 3.7%
SSE 1,403 pence 13.2 billion pounds 11.5 6.3%
Unilever 2,265 pence 64.2 billion pounds 16.3 3.6%
Tesco 338 pence 27.1 billion pounds 9.5 4.6%

Now, it's fair to say that not all of these shares tick the usual "screamingly cheap" boxes. But in any case, for the most part these aren't shares selected because adversity has temporarily driven down their prices: these are shares chosen to be solid picks over the long term.

In short, buy-and-forget shares, that will deliver a decent total return stretching into the future -- a future in which my retirement date will dawn.

The Buffett factor
And I'm not alone in thinking that. One of the stocks above emerged as a pick in this free special report from The Motley Fool: "Top Sectors Of 2012".

Here, in fact, are Motley Fool analyst Nathan Parmelee's very words: "Global diversification, long‑term growth potential, and a big dividend yield are why I see this share as an opportunity to beat the market without taking on above average risk." Its name? Why not download the report to find out? It's free.

And secondly, while all five of the shares in question have a decent history of dividend growth, one especially stands out, with an unbroken 25-year history of solid growth and rising dividends. It's a share that I've been loading up on in recent times, having almost doubled my holding this year.

Its name? You can find that out, too, in another free special report from the Motley Fool -- "The One U.K. Share Warren Buffett Loves." And from the way that Buffett has seemingly been topping-up himself in recent times, it's clear that he's also very clear about the company's long-term merits. As before, the report is free, so why not download a copy now?

"10 Steps to Making a Million in the Market" is the very latest Motley Fool guide to help Britain invest. Better. We urge you to read the free report today – it may transform your wealth.

Further investment opportunities:

Malcolm Wheatley owns shares in GlaxoSmithKline, Reckitt Benckiser, SSE, Unilever and Tesco. He does not have an interest in any other shares listed. The Motley Fool owns shares in Tesco. The Motley Fool has a disclosure policy.
We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


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